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Black & Decker CEO Stands to Get Big Payday

On Friday,
Black & Decker Corp.
investors are expected to bless the company's acquisition by
Stanley Works,
a fellow maker of power and hand tools that offered them a 22% premium for their shares.

Black & Decker's biggest individual shareholder, Chief Executive Nolan D. Archibald, who owns roughly 1% of the century-old company he has led since 1986, is in line to receive an extra reward. Mr. Archibald, who would be among the largest individual investors in the combined concern, stands to make a lot of money as full-time executive chairman of Stanley Black & Decker Inc.

Mark Reilly, a Chicago compensation consultant without ties to either company, estimated Mr. Archibald's pay package could be worth more than $89 million after three years.

The pay package is unusual not only for its size, but also for its composition, said compensation specialists, who also cited concerns about the way Black & Decker's board reviewed it. The package includes what the two companies call a "cost synergy bonus" of $45 million that Mr. Archibald would receive if the combined company meets expense-reduction targets. Such bonuses are usually offered in much smaller amounts.

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Both companies' boards approved Mr. Archibald's pay deal as part of the merger pact. In his new post, the executive would set the agenda for board meetings and co-chair a management committee overseeing integration of the two operations.

The 66-year-old Mr. Archibald, who gave up about $20 million in severance pay he could have been due following the takeover, declined to comment on his future payday.

Mark H. Willes, the presiding director of Black & Decker's board, said Mr. Archibald's deal "is in the interest of shareholders, because he has a huge incentive" to achieve the combined company's cost-cutting goals.

Stanley Works also defended the pay package. "Mr. Archibald has an important role and hard work ahead in helping to achieve at least $350 million in cost savings, the capitalized value of which is very significant," said company spokesman Timothy Perra.

Some experts who study how companies are governed said they are troubled by certain directors that Black & Decker's board selected for a special committee charged with appraising the acquisition deal and signing off on Mr. Archibald's pay.

In regulatory filings, the company characterized the committee as independent, but one member, M. Anthony Burns, jointly owns a golf-community development in Utah with Mr. Archibald. Another, Benjamin H. Griswold IV, sits on an advisory committee at Deutsche Bank AG, an investment bank that helped counsel Stanley Works on the deal.

Mr. Burns said Monday that he believes he and the nine other outside directors "were independent and made the right decision for shareholders in terms of the whole package."

The two directors' links don't rise to the level of conflicts prohibited by the company or its regulators. For example, under the rules of the New York Stock Exchange, where Black & Decker's stock trades, directors are considered to lack independence if they have material ties to the listed company itself.

But the situation does raise questions about the effectiveness of regulations set up in the wake of the corporate scandals early last decade to ensure an independent board review of corporate-governance matters like compensation.

It "demonstrates weaknesses in the independent-director system we have in place," said J. Robert Brown Jr., a law professor at the University of Denver who specializes in corporate governance and securities law.

"The Black & Decker board had too many conflicts to vote without bias about Mr. Archibald's pay deal and the overall merger," said Douglas M. Schmidt, an independent investment banker in Towson, Md., where Black & Decker is based.

Intrigued by the potential for cost cutting, Black & Decker and Stanley Works had discussed a merger a few times over the past 30 years, but their talks typically stalled over who would be in charge. Then in April, Stanley Works Chief Executive John F. Lundgren approached Mr. Archibald about a possible deal, based on advice from Deutsche Bank, according to a February regulatory filing.

Stanley Works made clear early on that it would seek to keep Mr. Archibald with the company, the filing said. The pace of talks picked up in September. Stanley sweetened its all-stock offer and proposed linking part of Mr. Archibald's compensation as executive chairman to achieving extensive cost cuts, according to the filing.

The companies announced the deal Nov. 2, offering Black & Decker shareholders stock in Stanley Works valued at $57.57, for a total of $4.5 billion. The deal has been a good one for Black & Decker's shareholders. The company's shares, which traded at $47.34 before the deal was unveiled, have since climbed to more than $75, an increase of nearly 60%.

Assuming the deal is consummated, Mr. Archibald will also do well. Once the merger is completed, he will receive one million "sign-on" stock options, a $1.5 million annual salary and $6.65 million in equity awards every year for three years. He also can earn an annual target bonus of $1.9 million, plus the $45 million synergy bonus if the combined concern reaches its expected cost-cutting goal of $350 million by 2013.

In addition, Black & Decker directors promised to pay their outgoing leader $4.7 million under a long-term incentive plan pegged to the company's financial performance that would have lasted through 2010.

To obtain a disinterested opinion on the merger terms being hammered out between the two companies, Black & Decker directors formed a three-person committee of its board in July, the February filing said. One member, Mr. Burns, is a retired CEO of Ryder System Inc. and longtime acquaintance of Mr. Archibald's. They jointly own Red Ledges, a luxury recreational community being built in Heber City, Utah, with a golf course designed by Jack Nicklaus. The cost of developing the project is expected to be more than $200 million, according to people familiar with the matter.

Following inquiries from The Wall Street Journal, Black & Decker issued a statement Tuesday confirming the pair's "significant investment" in the project since 2005. The company said it was aware of the relationship but didn't disclose it, because personal business dealings, as opposed to those involving Black & Decker, aren't at issue in the standards of independence set by the company or the NYSE. The relationship didn't affect the judgment of Mr. Burns or fellow directors regarding the transaction or the pay package, the company said.

Mr. Griswold, another member of the special committee, was senior chairman of Deutsche Bank Securities Inc. until he retired in February 2005 and remains a member of a Deutsche Bank advisory board that offers business-development advice to its U.S. and Canadian operations. Black & Decker, in a filing, cited Mr. Griswold's investment-banking experience as a reason for naming him to the committee. Mr. Griswold didn't participate in Stanley's selection of Deutsche Bank as an advisor, according to a person familiar with his thinking.

"We tried to be very careful that we set up the right committee," because it "had a special level of responsibility," said Mr. Willes, the presiding director at Black & Decker.